IEA proposes imposition of debt ceiling of 60% of GDP

The Institute of Economic Affairs (IEA) is proposing a strict oversight by Parliament over borrowing and debt accumula­tion as per Article 181 of the Constitution.

The move, it believes, will significantly reduce the country’s unsustainable debt.

The economic and policy think tank is also recommending the imposition of a debt ceiling of 60 per cent of Gross Domes­tic Product (GDP) at any time, which is generally regarded to be a sustainable threshold.

In a paper on “Institution­alising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway”, accord­ing to, it said only in times of emergency or crises should Parliament approve borrowing that would breach the debt ceiling, adding, “even in that circumstance, Parliament should indicate a time frame to return to the ceiling. This will be akin to what pertains in the US”.

According to the IEA, if this rule is strictly followed, the perennial debt crises would be prevented.

Again, the rule will also force fiscal discipline on the economic managers as a necessity to operate within the borrowing and debt ceilings, stressing, the borrowing

 and debt ceilings can be incorpo­rated into the Fiscal Responsibility Act.

The IEA has researched exten­sively in the area of debt sustain­ability and its evidence was that constant borrowing to finance the country’s budget deficits has his­torically fuelled the debt for long periods to unsustainable levels.

The country’s debt that had reached over 100 per cent of GDP prior to 2004 dropped to 26 per cent in 2006, after receiving the Highly Indebted Poor Country Initiation relief. However, the debt has ballooned yet again to over 100 per cent presently due to persistent fiscal profligacy.

This, the IEA pointed out, has taken Ghana back to the International Monetary Fund and prompted restructuring of the debt.

Due to Covid-19 pandemic, the fiscal rule established by the Fiscal Responsibility Act (FRA), 2018 (Act 982) was suspended

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